Then Tuesday Happened

By Jim Williams

The trends in copper change as much as, if not more than, the weather in the Midwest. At least a meteorologist has a pattern, or forecast, to see what is coming.

For those with a vested interest in the price of copper, there isn’t a forecast. In fact, the price may start trending up, and drop down to a near six-year low when the market closes – all in the same day!

Last week, it was news of a mine in Chile closing on Monday. The next day it was bad economic news out of China. Later in the week investors took a wait and see approach while waiting on the Fed to make a move on interest rates.

This week started out with more bad news out of China and a note from investment bank Goldman Sachs warning investors that prices would continue to fall. In the note, entitled “Copper’s bear cycle still has years to run,” analysts predicted copper prices would probably drop to $4,800 a ton by the end of this year, and to $4,500 by the end of 2016.

In keeping with their prediction, the price of copper dropped significantly Monday to close at the lowest level since the wake of the financial crisis in 2009. The drop was based on expectations of China’s Manufacturing Purchasing Managers Index (PMI), scheduled for release Thursday, to show a continued slowdown in factory activity.

Then Tuesday happened. Copper prices edged higher on reports of Chinese infrastructure spending as global stock markets stabilized, lending support to the economically-sensitive asset.

“It’s a light recovery movement after [Monday’s] losses [as] China has implemented a new stimulus program to build some underground tube lines,” said Daniel Briesemann, a base metals analyst at Commerzbank.

Investors were also left in shock this week after news of Swiss mining giant Glencore PLC’s share price falling nearly 30 percent to an all-time low.

The company—one of the world’s largest dealers of copper, coal, oil and grains—has lost billions in value because of its high debt load and the continued low prices for the commodities it trades, particularly copper.

“If Glencore is dumping stock, then commodity prices will go lower and further exacerbate Glencore’s problems, but I doubt $17 billion’s worth of inventory is enough to bring markets down like Lehman [Brothers] did,” Numis Securities told Nasdaq.com.

Then Tuesday happened. Glencore stock rallied as much as 20% on Tuesday, recovering from its 29% drop a day earlier, after the company dismissed concerns about its financial health.

“Glencore has taken proactive steps to position our company to withstand current commodity market conditions,” spokesman Charles Wantephul said in an email.

Then Tuesday happened. At the end of the day, copper for December delivery (the most actively traded contract) was up 0.25 cent, or 0.1%, at $2.2540 a pound on the Comex division of the New York Mercantile Exchange.

We will keep an eye on the forecast and see what next Tuesday has in store. Have a great week.